Meaning
Legal systems provide emergency remedies to prevent a defendant from disposing of assets or destroying evidence before a final judgment is rendered. A judicial preservation order allows a court to seize, freeze, or seal the assets, evidence, or specific behavior of a respondent during or prior to litigation. This action maintains the status quo to ensure that a future judgment can be successfully executed.
Precautionary Measure
Applicants must demonstrate that their rights are in urgent danger and that irreparable harm would occur without immediate court intervention. The applicant must also provide a financial guarantee to cover potential losses suffered by the respondent if the claim is later found to be groundless.
Asset Freeze
Chinese courts execute these orders by directly freezing bank accounts, sealing factory equipment, or suspending the transfer of equity shares. This freeze prevents the defendant from transferring capital or moving inventory to escape liability during the trial. The preservation remains in effect for a statutory period, typically up to one year for bank accounts and two years for other movable property.
Litigants must apply for extensions if the legal proceedings continue beyond these limits.
Legal Security
Respondents can lift the preservation by providing adequate counter-security to the court. This counter-security must equal the value of the frozen assets to guarantee that the applicant’s claims are still protected.
